In Taiwan, handling business of exchange is a licensed business for banks. Anyone other than banks conducting such business is considered illegal and may criminally liable. However, since the payment methods is changing, it is no longer to meet the demand for cross-border fund exchange only through banks, and thus it becomes important to clarify the scope and criteria for defining "business of exchange."

According to the explanation letter by Taiwan Ministry of Finance, "business of exchange" refers to “the business that the actor is retained by its client to handle the receipt and delivery of funds at different locations (without transfer of cash) for purpose of paying the debt owned by the client to such third party or transfer of funds. Nevertheless, upon closer examination of the various modern payment methods, such as third-party payment and online credit card transactions, it is possible that any transaction involving the non-cash transfer of funds through intermediaries may be deemed an illegal business of exchange. Therefore, it is worth discussing whether this interpretation is reasonable.

Looking at the recent amendment to "The Act Governing Electronic Payment Institutions " (hereinafter referred to as the "EPI Act") Article 4 Section 1, electronic payment institution may operate the business including collecting and making payments for real transactions as an agent, receiving stored funds and engage in small-amount exchange business.”

Moreover, according to EPI Act Article 3 Section 6 and Section 8, “Collecting and making payments for real transactions as an agent” refers to the acceptance of funds transferred by the payer based on an actual transaction and the transfer of the payment for the actual transaction to the payee after certain conditions are met, upon the expiry of a certain period, or based on the instructions of the payer; “Small-amount exchange business” refers to the use of an electronic payment account or a stored value card for funds transfer below a certain amount in accordance with payment instructions made by the payer that are not based on actual transactions. According to the definition in the above legal provisions, the distinction between “collecting and making payments for real transactions as an agent” and “business of exchange” is based on whether transfer of fund is for "actual transactions". (See Supreme Court Criminal Judgment 111 Tai-Shang-Zi 1327).

In other words, “collecting and making payments for real transactions as an agent” generally refers to specific transaction purposes that is initiated with underlying reasons, i.e. it involves both buyers and sellers transacting actual goods or services as the basis, with an intermediary facilitating fund transfers. Unlike business of exchange that do not require specific reasons, non-bank entities can also provide "collecting and making payments for real transactions as an agent" services without being subject to punishment under Article 125 of the Banking Act. This is in accordance with the legislative rationale (2) and (3) provided on February 4, 2015, when the EPI Act was enacted and announced.

In practice, the defendant often argues that business of exchange occur overseas rather than domestically. However, multiple rulings have emphasized that the so-called "handling exchange business" refers to the business of accepting the commission from remitters to remit funds from one location within the country to another location within the country or to deliver funds from within the country (or abroad) to a recipient outside (or inside) the country. For example, when an entity receives New Taiwan Dollars from customers in Taiwan and delivers an equivalent amount in foreign currency to designated recipients overseas, it falls within this definition.

In other words, regardless of whether the exchange business are conducted through proprietary, intermediary, agency, or other arrangements, when the actor, for its client, handles the receipt and delivery of funds at different locations (without transfer of cash) for purpose of paying the debt owned by the client to such third party or transfer of funds., itfalls within the scope of business of exchange under the Banking Act. (See Supreme Court Judgments 92 Tai-Shang-Zi-2040, Supreme Court Judgments 95 Tai-Shang-Zi-1327, and Supreme Court Judgments 97 Tai-Shang-Zi -6582.)

Another crucial point to note is that the subject of business of exchange is not limited to New Taiwan Dollars. Funds and payments can all be considered as objects of business of exchange, without any restriction on the designated currency or foreign currency involved (See Taiwan High Court Criminal Judgment 110 Jin-Shang-Su-Zi-18, , Taiwan High Court Taichung Branch Criminal Judgment 100 Jin-Shang-Su-Zi-6 ). Furthermore, earning exchange rate differences is not a requirement for such transactions (See Supreme Court Judgment 95 Tai-Shang-Zi-5910).

In conclusion, for payment service providers or consumers using such service, they all need to pay close attention to how "business of exchange" is defined in Taiwan to reduce the risk of inadvertently engaging in illegal or non-compliant business models.

(The article is originally in Chinese which can be found here)